Oracle Muscles in on SAP-Retek Deal

Oracle (Nasdaq: ORCL), never a company to shy from head-on competition, announced today that it would outbid rival SAP (NYSE: SAP) in its attempt to buy software maker Retek, offering US$9 per share. SAP had agreed last week to pay $8.50 a share.

Oracle's offer bumps the bid for the retail applications provider from $496 million to $524 million. The database giant has already begun buying Retek stock. Company founder Larry Ellison said Oracle bought 5.5 million shares, or nearly 10 percent of Retek, in the past two days. He portrayed the move as a necessary counterpunch to keep the database giant at the top of the heap.

Who's No. 1?

"Oracle's applications business in North America is larger than SAP's," Ellison said in a statement. "We intend to defend our number one position."

Ellison, in his letter to the Retek board, laid out his arguments for Oracle's offer. The companies have been partners since Retek was founded in 1986, he said. In addition, about 80 percent of Retek's customers run Oracle and most Retek applications were built with Oracle's development tools.

Evan Quinn, group vice president for applications at Forrester Research, sees the latest development as a smart move.

"In the U.S., Oracle has solid penetration in the retail industry in terms of technology, but in terms of applications it has often partnered with Retek to gain a footing," he told CRM Buyer via e-mail. "Oracle provides the horizontal solutions (HR, financials and procurement, for example), and Retek provides the industry-specific applications, such as point-of-sale."

He continued, "Oracle and Retek fit well together. Retek uses a fair amount of Oracle technology, and Oracle possesses the international channel and localization technologies that could help Retek reach new markets."

SAP's Move

Andrew White, a research analyst with Gartner (NYSE: IT), concurred. "Retek, as a partner for Oracle today, is really 'the' retail strategy for Oracle," White told CRM Buyer in an e-mail . "If Retek left the market and went to SAP, Oracle's retail strategy would need to be redrawn. Core retail applications are not in Oracle, they are in Retek -- hence the Oracle/Retek partnership."

The next move is up to SAP.

"SAP needs to decide whether they want to counteroffer, invest further in their own retail R&D, or look to an alternative supplier such as JDA Software," Quinn said. "It is interesting that JDA Software was upgraded today by Garban [Institutional Equities]."

White believes that SAP has less to lose in the retail market than Oracle. "SAP is less reliant on Retek than Oracle is, as SAP competes more with Retek," he wrote. "SAP can go elsewhere (another buy?) or can keep working at retail" on its own.